“Every country will suffer”: Indonesia’s ban on palm oil exports expected to further cripple food system

02 May 2022 --- Indonesia’s sudden export ban on palm oil has industry watchers anticipating a surge in the cost of edible oils, including sunflower oil, soybean oil and rapeseed oil. Even prior to this, the global stocks of key edible oils have already been tightly squeezed due to inflationary price swings, unfavorable weather conditions and Russia’s invasion of Ukraine.

Indonesia’s decision to suspend palm oil exports was enforced to ease the nation’s domestic cooking oil prices during this uncertain time. 

“As the world’s biggest producer of palm oil, it is ironic that we are experiencing a shortage of cooking oil. As president, I cannot allow that to happen,” says Indonesian President Joko Widodo.

“The scarcity has been happening for four months and the government has enacted a number of policies but they have not worked.”

Major global markets such as South Korea are continuing to experience sinking palm oil supplies. Korea imports around 340,000 metric tons of palm oil from Indonesia per year, which is about 56% of its total imports of palm oil, according to its Ministry of Trade, Industry and Energy.

In Pakistan, Rasheed JanMohd, chairman of Pakistan Edible Oil Refiners Association, remarks: “Nobody can compensate for the loss of Indonesian palm oil. Every country is going to suffer.”

Major global markets such as South Korea are continuing to experience sinking palm oil supplies.Industry bracing for impact
Industry has reacted quickly to news of the world’s leading palm oil producer pulling out. 

A Unilever spokesperson tells FoodIngredientsFirst: “We are aware of the Indonesian Government’s announcement regarding the banning of palm olein exports and its raw material from April 28 and are monitoring the situation closely.”

A host of industry titans rely on palm oil supply chains across Indonesia. Snacking giant Mondelēz International alone – producing Oreo, Chips Ahoy and Ritz – accounts for 0.5% of global palm oil consumed, while sourcing primarily from Indonesia and Malaysia.

“The ban will create adverse effects. It has the potential to decrease [palm oil] production,” says President Widodo.

“I understand the state needs taxes, needs revenue, needs state surplus. But fulfilling people’s basic necessities is an important priority,” he stresses. 

“I ask all palm oil businesses to prioritize domestic needs and fulfill people’s needs. If domestic needs are met, then I will surely repeal the export ban.”

Widening scope of palm oil ban
The move is now anticipated to hit price-conscious consumers in Asia and Africa who are dealing with surging fuel and food costs. The export ban – which will last until the nation’s shortages are resolved – broadly includes crude and refined palm oil products.

The announcement is a reversal of Minister Hartarto’s statement made previously, when he assured that the export ban would only cover refined, bleached and deodorized palm olein.

“The policy extends to all products be it crude palm oil; refined palm oil; refined, bleached and deodorized palm olein; palm oil mill effluent; and used cooking oil,” coordinating minister for economic affairs Airlangga Hartarto said in a recent press conference.

“This policy ensures all crude palm oil products to be dedicated entirely to ensure the availability of cooking oil at a price of 14,000 rupiah (US$0.96) per liter, particularly at traditional markets and for SMEs,” he remarks.

In March, the FAO vegetable price index rose by more than 23%.Industry hikes prices in response to inflation
In March, the Food Agriculture Organization of the United Nations’ vegetable price index rose more than 23%. This new record is attributed to ballooning prices for core vegetable oils such as palm, soy, sunflower and rapeseed.

With inflation comes the knock-on effect of “shrinkflation,” in which shelf-stable food brands are downsizing the size or quantity of their products – while keeping them at the same price. This has been observed in some developed markets, such as the UK.

Cost inflation for food businesses is expected to continue rising sharply by some analysts. In its recent first-quarter sales report for 2022, Nestlé reveals it has raised prices for its food and other FMCG products by 5.2% as a result.

In other counterbalancing measures, some food manufacturers have raced to switch out certain impacted ingredients with cheaper alternatives – like replacing sunflower oil with refined rapeseed oil. However, this has caused concern as the quick change may lead to labeling inconsistencies.

While commodity prices continue to fluctuate, industry giant Unilever does not anticipate having to cut back on specific food products for its global markets following Indonesia’s palm oil ban.

The company spokesperson tells FoodIngredientsFirst: “We are already well placed to look at alternative materials due to our supply chain resilience programs, and currently have sufficient supplies to cover our needs. We do not foresee any immediate product shortages.”

Kemin launches cost-savings indicator for frying oil
Industry recognizes the importance of vegetable oil in food manufacturing and how costly discarding sunflower, canola and palm oil can be for its producers. 

Amid global market volatility, ingredient manufacturer Kemin Industries has developed a new cost-savings indicator for customers in Asia’s frying industry to better understand and see the benefits of using antioxidants to extend the shelf life of frying oil and and save costs on oil usage.

Adding antioxidants to vegetable oil provides production-cost savings and extends shelf life, the company highlights. “A longer product shelf life reduces the use of raw materials, enhances logistical efficiency and minimizes food waste – all of which can impact climate change.”

Leveraging company expertise and internal studies conducted by its scientists over the years, the cost-savings indicator illustrates cost-saving scenarios based on inputted information.

“On average, we found that effective adoption of antioxidants in vegetable oil can provide as much as 40% more frying cycles for frying oil and increase product shelf life by approximately 30%, which helps reduce the cost of using oil and ease pressure on the supply chain,” says Michelle Lim, president, Kemin Food Technologies – Asia.

By Benjamin Ferrer

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